The Basics of Making an Offer
A written proposal is the foundation of a real estate transaction. Oral promises are not legally enforceable when it comes to the sale of real estate. Therefore, you need to enter into a written contract, which starts with your written proposal. This proposal not only specifies price, but also all the terms and conditions of the purchase. For example, if the seller offered to help with $2,000 toward your closing costs, make sure that's included in your written offer and in the final completed contract, or you won't have grounds for collecting it later.
REALTORS® have standard purchase agreements and will help you put together a written, legally binding offer that reflects the price as well as terms and conditions that are right for you. Your REALTOR® will guide you through the offer, counteroffer, negotiating and closing processes. In many states certain disclosure laws must be complied with by the seller, and the REALTOR® will ensure that this takes place.
If you are not working with a real estate agent, keep in mind that you must draw up a purchase offer or contract that conforms to state and local laws and that incorporates all of the key items. State laws vary, and certain provisions may be required in your area.
After the offer is drawn up and signed, it is usually presented to the seller by your real estate agent, by the seller's real estate agent, if that's a different agent, or often by the two together.
What is in an Offer?
The purchase offer you submit, if accepted as it stands, will become a binding sales contract. So it's important that the purchase offer contains all the items that will serve as a "blueprint for the final sale." The purchase offer includes items such as:
- Address and the legal description of the property
- Sale price
- Terms: for example, all cash or subject to you obtaining a mortgage for a given amount
- Seller's promise to provide clear title (ownership)
- Target date for closing (the actual sale)
- Amount of earnest money deposit accompanying the offer, whether it's a check, cash or promissory note, and how it's to be returned to you if the offer is rejected - or kept as damages if you later back out for no good reason
- Method by which real estate taxes, rents, water bills and utilities payments are to be adjusted (prorated) between buyer and seller
- Provisions about who will pay for title insurance, survey, property inspections, etc.
- Type of deed to be given
- A provision that the buyer may make a last-minute walkthrough inspection of the property just before the closing
- A time limit (preferably short) after which the offer will expire
- Contingencies, which are an extremely important matter and that are discussed in detail below "list"
Contingencies - "Subject to" Clauses
If your offer says "this offer is contingent upon (or subject to) a certain event," you're saying that you will only go through with the purchase if that event occurs. Here are two common contingencies contained in a purchase offer:
- The buyer obtaining specific financing from a lending institution: If the loan can't be found, the buyer won't be bound by the contract.
- A satisfactory report by a home inspector: for example,
"within 10 days after acceptance of the offer." The seller
must wait 10 days to see if the inspector submits a report that satisfies
the buyer. If not, the contract would become void. Again, make sure
that all the details are explicitly stated in the written contract.
This is a deposit that you give when making an offer on a house. A seller is understandably suspicious of a written offer that is not accompanied by a cash deposit to show "good faith." A real estate agent or an attorney usually holds the deposit, the amount of which varies from community to community. This will become part of your down payment.
When you receive a purchase offer from a would-be buyer, remember that unless you accept it exactly as it stands, unconditionally, the buyer is free to walk away. Any change you make in a counteroffer puts you at risk of losing that chance to sell.
Who pays for what items is often determined by local custom. You can, however, negotiate with the buyer any agreement you want about who pays for the following costs:
- Property Inspection
- Buyer’s closing costs
- Points paid to the buyer's lender
- Buyer’s broker fees
- Repairs required by the lender
- Home protection policy
You may feel some of these costs are none of your business, but many buyers - particularly first-timer buyers - are short of cash. Helping them may be the best way to get your home sold.